For instance, the low-cost direct plans offered recently by ET Money and Paytm Money apps provide the opportunity of earning up to 1.5% more than one would in a regular plan. “It’s a clear saving of 1.5%, which can add up to several lakhs over the long term,” says Mukesh Kalra, CEO, ET Money. The app has over 1,000 funds from 20 AMCs on its platform, and is likely to add 6-7 more AMCs soon.
Agrees Pravin Jadhav, Director, Paytm Money: “We charge no hidden fee from AMCs, so that investors receive optimised returns. In general, all investments are likely to provide 1% higher returns than regular funds.” Another impact of the new offering by these apps is that the existing players, some of which have been offering direct plans online or through apps for a fee—Clearfunds, Zerodha Coin, Kuvera, Paisabazaar, among others—have begun waiving the fees and commissions, creating a level playing field for investors.
Considering that only 14% of the assets under management (AUM) are under direct mutual fund plans, while 86% are with the regular plans, according to a Crisil report, this development may help direct the flow of money towards the former.
How does the investor gain?
So how do the apps help investors earn more? All mutual fund schemes are available to investors in two versions: regular and direct. The regular plans charge around 2.5% as annual management fee on the investment value. Of this, 1-1.5% is claimed as commission by the agent or distributor, while the remaining 1% goes as fee to the AMC. The direct plans have done away with the agent commission of 1-1.5%, which enhances the returns of the investors.
For instance, if you started investing in an equity fund through a systematic investment plan (SIP) of Rs 5,000 a month for 15 years, it would yield a corpus of Rs 33.8 lakh assuming a return of 15%. In the case of a regular plan, which charges 2.5%, the corpus would pare down to Rs 26.5 lakh in the same period. However, a direct plan, without the commission of 1.5%, resulting in a fee of only 1%, would yield a higher amount of Rs 30.6 lakh, a clear gain of Rs 4.1 lakh compared to a regular plan. For a higher SIP and longer span of investment, the gains will be higher.
What is the investor’s gain?
If an SIP of Rs 5,000 in an equity fund is continued for 15 years, the investor will gain Rs 4.1 lakh more through direct plans
Assumptions: Monthly SIP of Rs 5,000 in an equity fund giving a return of 15% compounded annually for a period of 15 years. Charges in regular plan assumed to be 2.5%, and in direct plan, 1%.
Is the fee free for life?
While both ET Money and Paytm Money are likely to continue with the zero-fee model for some time, it may not always be the case. “For now we are in investment mode and our focus is to double the industry size from 20 million to 50 million investors by 2025. We will subsequently focus on revenues,” says Jadhav. Adds Kalra: “We haven’t decided on this issue yet, but are providing a ‘Free Forever Account’ limited period offer, which can make you eligible for a lifetime of fee-free account.”
According to this offer, if you share the ET Money app link with your friend, and both of you open investment accounts, you and the friend will qualify for free accounts for life.
How do you start investing?
It’s a simple digital process, wherein you download the app and provide your PAN card details. If you are an existing mutual fund investor, no KYC check is required. If not, you can get your KYC done by uploading images of relevant documents, including your PAN card and address proof, besides a selfie video. This is a paperless process and takes only a few minutes. Once this is done, you can start investing. “During the investing process, we provide the investors report cards of toprated funds based on their return and risk profiles, as prepared by leading agencies,” says Kalra of ET Money.
Besides the various fund categories like ‘High Risk & High Return’, ‘Funds with Regular Income’ or ‘Top Tax Saver Funds’, this app also offers ‘Smart Solutions’, which offers portfolios of three funds across fund houses and categories to suit your needs and goals. As for Paytm Money, says Jadhav: “Investors can choose from plans in 25 AMCs in sync with their risk profile and goals, and can pay from over 190 banks . We are offering free risk assessment to help them understand their risk profile and suitability for the right investments. Our advisory product will be launched soon.”
Besides offering direct plans, the ET Money app also provides other services like ‘Investments’, wherein you can consolidate your mutual fund investments by making a portfolio and monitoring its performance. Then there’s ‘SmartDeposit’, which offers an alternative to the savings bank account by allowing you to put your money in a liquid fund. This helps you earn 6-7% compared with 3-4% in the bank account, and also provides the Insta-Withdraw option. “We are the first to launch this, wherein you can withdraw your money in 30 seconds,” says Kalra. You can also have your spending tracked and managed with ‘Spends’, pick insurance via ‘Insurance’, and avert a month-end cash crunch by borrowing through ‘CreditLine’.
OTHER PLAYERS WITH DIRECT PLANS
Some of these have waived fees for direct plans recently
Free till Rs 50,000 investments
Offers direct plans at no charge in demat form
Charges no fee for direct plans
No charges or fees since September 2017
Offers goalbased planning.
Started direct plans in April 2018
Direct plans at annual fee of Rs 999 or monthly fee of Rs 99
Selling direct plans since January 2018 without charging any fee
Zero commission for direct plans